PotNetwork

Just the term pot stocks sound awful. It conjures up shady deals by the pump and dump stock jocks. Sadly the stereotype exists in part because it happens in the wild west days of cannabis penny stocks. This past July, PotNetworks (OTC: POTN) President Charles Vaccaro made contact with an undercover FBI agent saying “He was looking for someone to help them liquidate around $100 million in stock in multiple companies and it had to be processed in a foreign brokerage account because the Securities and Exchange Commission was getting tougher on U.S. broker-dealers liquidating large blocks of penny stock.” He and two others, Eli Taieb and Dror Svorai, were all charged with securities fraud, wire fraud, and conspiracy. Svorai was the founder of Vapor Group (OTC: VPOR) and Taieb controls a company called One Investment Capital and owns over 27 million shares of POTN.

The scam was that the men would buy shell companies and according to a story on GoodeTrades, “Then take approximately 20 percent ownership through debt conversions. They would then transfer shares to an offshore brokerage, sell the shares, and transfer the money back into the United States. The three men are alleged to have previously sold shares offshore but had trouble repatriating the proceeds.” Taieb and Svorai were both released on a million-dollar bail, while it isn’t clear if Vaccaro secured his million-dollar bail money. He had filed for an extension to come up with the funds, but that was only approved to August 2.

CannTrust

You had one job to do and that was to follow the rules. Don’t plant any cannabis in the room until it has a license. Sounds simple, right? However, top executives at CannTrust (NYSE: CTST) got ahead of themselves, perhaps to satisfy shareholders, and did just that. They began growing plants in rooms with pending licenses. The company actually received those licenses, but it was a month after getting busted. It even had the nerve to film a promotional video in front of the illegal grow rooms that used temporary walls.

Since then the company has been in a free-fall as the stock has tumbled, the accused executives were booted out of the company and product was returned to the company unsold. Health Canada seized some of the company’s inventory and is currently investigating all the issues and has yet to make a decision as to how it will punish the company. CannTrust says it will sell the company, but so far it doesn’t seem that anyone is interested. If the licenses get pulled, then it’s just the facilities that have any value. If that’s the case, buyers can wait until they have a carcass to pick over.

Namaste Technologies

Namaste Technologies has continued to try to convince the market that it has moved beyond its checkered past with former CEO Sean Dollinger. Namaste’s problems began when the company hosted a promotional event featuring fake nurses in sexy costumes to promote its medical software application. The event was not received well by many in the cannabis community who have sought to distance themselves from a “bro” culture. Plus, it ran afoul of the promotional restrictions set by Quebec. But that was just the beginning of Namaste’s woes.

Namaste came under a short-seller attack by Citron Research in October 2018 which caused the board to form a Special Committee to investigate the allegations. Citron accused Namaste in saying it was planning on listing on NASDAQ in order to bring in investors. “Fake claim of a Nasdaq Listing to get investors to buy the stock. Mr. Dollinger has promised investors a Nasdaq listing and the simple takeaway that comes with it, a higher share price on the back of an up-listing.”

Next, it claimed there was an issue with the sale of Dollinger Enterprises US, which turned out to be true. “With the hope of obtaining the NASDAQ listing on Nov 28, 2017, Namaste announced that it divested of its US assets, Dollinger Enterprises US Inc. Just to be clear, Dollinger said he sold this asset to an arm’s length party… but it was really sold to David Hughes who has been with Namaste since Feb 2015 (and Paul Burn who has been with Namaste since 2016). The Citron report set off a chain of events resulting in Dollinger being removed with cause. In September of 2018, the stock was at $2.65. It never made it to the Nasdaq and lately trades at 33 cents a share. Last month, Meni Morim was named the permanent CEO after taking over for Dollinger.

Doyen Elements

This private company had dreams of becoming a publicly traded company, but instead left a string of small investors lighter in the wallet. Doyen Elements now known as Covalent Collective or Reach Genetics raised money online suggesting that small investors would hit it big once the company went public. In 2017, Doyen Elements which was run by Geoff Thompson, was planning to publicly list its shares on the OTC Market, and was accepting investments prior to its IPO at $7.00 a share. Doyen Elements said it had big plans and was currently building one of the largest grow facilities in North America. However, Thompson was in big trouble at the time with the SEC, which alleged that Thompson, acting through a company called Accelera Innovations Inc. and Synergistic Holdings LLC, sold approximately $1.7 million worth of Accelera stock to investors and that the sale was not registered or subject to an exemption from registration.

This past June, the SEC filed a subpoena enforcement action in the U.S. District Court for the Northern District of Illinois against Covalent Collective, Inc. f/k/a Doyen Elements International, Inc. f/k/a Advantameds Solutions, Inc. for failure to produce documents in an investigation. The SEC’s application alleges that Doyen, through its founder, Geoffrey Thompson, may have violated the registration provisions of the securities laws by engaging in an unregistered offering of securities, and may also have made misleading representations to investors and potential investors about the operations, acquisitions, and projected stock price of Doyen and related entities.

Tradiv

This scandal didn’t occur in 2019, but the story is definitely worth including. A cannabis online wholesale trading company, Tradiv billed itself as the “Amazon of the marijuana industry” by founder Aeron Sullivan. He raised several million dollars for the company as it emerged from the cannabis incubator CanopyBoullder. Sullivan was named an Inc. Magazine 30 Under 30 in 2016 and everything looked to be heading in the right direction. That is until Sullivan and his girlfriend took acid on a trip to Alaska and God spoke to him. Apparently, God had other plans for Sullivan and it didn’t include running Tradiv. He left to pursue a more religious life and is now the Director of Technology at The Bible Project.

The company’s new CEO took it in a different direction leading Tradiv to close up shop losing all the original investor money. Emily Paxhia, the co-founder of Poseidon Asset Management was quoted in Inc. saying, “Tradiv was the darling of the industry, with a leader–Sullivan–investors loved to love. Losing is part of investing, but this was bad. It was crazy.” Small startups come and go, but this story was truly one for the books.

— At the time of publication, Borchardt had no positions in any securities mentioned.

TheFreshToast.com, a U.S. lifestyle site, that contributes lifestyle content and, with their partnership with 600,000 physicians via Skipta, medical marijuana information to The GrowthOp.

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